RELIABILITY INC 10-Q

Item 1. Financial Statements RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED BALANCE SHEETS (amounts in thousands, except per share data) March 31, December 31, 2023 2022 ASSETS CURRENT ASSETS Cash and cash equivalents $ 364 $ 227 Trade receivables, net of allowance for doubtful accounts 3,582 6,337 Retention credit receivable 1,226 1,219 Notes receivable from related parties 5,327 5,251 Prepaid expenses and other current assets 396 430 Total current assets 10,895 13,464 Property, plant and equipment, net 19 26 Total assets $ 10,914 $ 13,490 LIABILITIES AND SHAREHOLDERS’ EQUITY CURRENT LIABILITIES Factoring liability $ 924 $ 2,619 Accounts payable 443 698 Accrued expenses 232 339 Accrued payroll 658 981 Deferred revenue 176 176 Income taxes payable 5 6 Total current liabilities 2,438 4,819 Total liabilities 2,438 4,819 Commitment and contingencies (Note 6) - - Subsequent events (Note 10) - SHAREHOLDERS’ EQUITY Common stock, without par value, 300,000,000 shares authorized, 300,000,000 issued and outstanding as of March 31, 2023, and as of December 31, 2022 Additional paid-in capital 750 750 Retained earnings 7,726 7,921 Total shareholders’ equity 8,476 8,671 Total liabilities and shareholders’ equity $ 10,914 $ 13,490 The accompanying notes are an integral part of these statements. 3 RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS (amounts in thousands, except per share data) 2023 2022 For the Three Months Ended March 31, 2023 2022 Revenue earned Service revenue $ 5,199 $ 5,783 Cost of revenue Cost of revenue 4,488 5,053 Gross profit 711 730 Selling, general and administrative expenses 933 1,305 Operating loss ( 222 ) ( 575 ) Other income (expense) Interest income from related parties 66 - Interest income 8 54 Interest expense ( 44 ) ( 29 ) Other (expense) - ( 2 ) Loss before income tax expense ( 192 ) ( 552 ) Income tax expense ( 3 ) ( 2 ) Consolidated net loss $ ( 195 ) $ ( 554 ) Net income per share: Basic $ 0.00 $ 0.00 Diluted $ 0.00 $ 0.00 Share used in per share computation: Basic 300,000,000 300,000,000 Diluted 300,000,000 300,000,000 The accompanying notes are an integral part of these statements. 4 RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF CHANGE IN EQUITY For the Three Months Ended March 31, 2023 and 2022 (amounts in thousands, except per share data) Shares Amount Capital Earnings Total Equity Additional Common Stock Paid-in Retained Shares Amount Capital Earnings Total Equity Balance, December 31, 2021 300,000,000 $ - $ 750 $ 8,660 $ 9,410 Net Loss - - - ( 554 ) ( 554 ) Balance, March 31, 2022 300,000,000 $ - $ 750 $ 8,106 $ 8,856 Balance, December 31, 2022 300,000,000 $ - $ 750 $ 7,921 $ 8,671 Balance 300,000,000 $ - 750 7,921 8,671 Net Loss - - - ( 195 ) ( 195 ) Balance, March 31, 2023 300,000,000 $ - $ 750 $ 7,726 $ 8,476 Balance 300,000,000 - 750 7,726 8,476 The accompanying notes are an integral part of these statements. 5 RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (amounts in thousands) 2023 2022 For the Three Months Ended March 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 195 ) $ ( 554 ) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization 7 9 Accrued interest ( 66 ) ( 54 ) Changes in operating assets and liabilities: Trade receivables 2,755 1,361 Retention credit receivable ( 7 ) - Prepaid expenses and other current assets 34 82 Accounts payable ( 255 ) ( 358 ) Accrued payroll ( 323 ) ( 1,116 ) Accrued expenses ( 107 ) ( 138 ) Other liabilities - ( 1 ) Income taxes payable ( 1 ) 171 Net cash provided by (used in) operating activities $ 1,842 $ ( 598 ) Cash flows from investing activities: Purchase of fixed assets - ( 1 ) Net cash used in investing activities $ - $ ( 1 ) Cash flows from financing activities: Net borrowing/(repayment) of line-of-credit ( 1,695 ) 644 Advances to related parties ( 10 ) - Net cash provided by (used in) financing activities $ ( 1,705 ) $ 644 Net increase (decrease) in cash and cash equivalents 137 45 Cash and cash equivalents, beginning of year 227 24 Cash and cash equivalents, end of year $ 364 $ 69 The accompanying notes are an integral part of these statements. 6 RELIABILITY INC. AND SUBSIDIARY UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS, continued (amounts in thousands) For the Three Months Ended March 31, Supplemental disclosures of cash flow information: 2023 2022 Cash paid during the year for: Interest $ 44 $ 29 Income taxes $ 4 $ 6 7 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (amounts in thousands, except per share data) NOTE 1. NATURE OF OPERATIONS AND BASIS OF PRESENTATION Nature of Operations Reliability, Inc. is a leading provider of employer of record and temporary media and information technology (“IT”) staffing services that operates, along with its wholly owned subsidiary, The Maslow Media Group, Inc (“MMG”), (collectively, “Reliability” or the “Company”), primarily within the United States of America in four industry segments: Employer of Record (“EOR”), Recruiting and Staffing, Direct Placements, and Video and Multimedia Production which provides script to screen media talent. Our Staffing segment provides skilled field talent on a nationwide basis for Media, IT and finance and accounting client partner projects. Video Production involves assembling and providing crews for special projects that can last anywhere from a week to 6 months. Reliability was incorporated under the laws of the State of Texas in 1953, but the then principal business of the Company started in 1971 was closed down in 2007. The Company completed a reverse merger with MMG (the “Merger”) on October 29, 2019. Company Background Linda Maslow founded Maslow Group initially in 1988 and incorporated the firm under the name the Maslow Media Group Inc., in March 1992. On November 9, 2016, Linda Maslow sold the business to Vivos Holdings, LLC (“Vivos Holdings”) owned by Dr. Naveen Doki (“Dr. Doki”) and Silvija Valleru (“Ms. Valleru”). In 2018, Vivos Holdings and several other Vivos companies, (“Vivos Group”) engaged an investment banker who approached management of Reliability to discuss a potential reverse merger transaction. The other investors who collaborated on a share swap of MMG for other Vivos companies were Shirisha Janumpally (“Mrs. Janumpally”) , wife of Dr. Doki, and Kalyan Pathuri (“Mr. Pathuri”), husband of Silvija Valleru. These individuals, included but were not limited to Dr. Doki, Mrs. Janumpally, Mr. Pathuri, and Mrs. Valleru, Igly Trust, and Judos Trust also have common ownership combinations in a number of other entities [Vivos Holdings, LLC, Vivos Real Estate Holdings, LLC (“VREH”), Vivos Holdings, Inc., Vivos Group, Vivos Acquisitions, LLC, and Federal Systems, LLC], (collectively referred to herein as “Vivos Group”). The reverse merger was consummated on October 29, 2019. As a result of the Merger, the Vivos Group (Vivos Holdings LLC, officially) acquired approximately 84 % of the issued and outstanding shares of Reliability which were distributed by Vivos Holdings, LLC. On October 29, 2019, MMG became a wholly owned subsidiary of Reliability by merging R-M Merger Sub, Inc., a Virginia corporation and a wholly owned subsidiary of Reliability, with and into Maslow, with MMG being the surviving corporation. The Company ceased to be a “shell” company as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”) by virtue of its ownership of MMG following the Merger. The acquisition of MMG also resulted in a “change in control” of Reliability. 8 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (amounts in thousands, except per share data) Upon purchasing MMG and thereafter, Vivos Holdings, LLC and their affiliates (collectively the “Vivos Group”) began borrowing monies from MMG starting with $ 1,400 in 2016 and by the end of 2019 the balance had reached $ 3,418 which included a $ 3,000 guarantee from Dr. Naveen Doki. (See Note 8 for more details). The attempted collection of the guarantee and debt from the Vivos Group set off a chain of legal events culminating in an arbitration hearing and award in 2022. (See below and Item 3 for complete summary). We refer below to the disputes between Reliability and the Vivos Group as the “Vivos Matter.” A series of legal actions and hearings took place starting in March of 2020 through September of 2021. At that time, Arbitration was agreed by both the Vivos Group and MMG, The proceedings began in February 2022 and were completed in March 2022. On August 31, 2022, the Arbitrator issued an award (the “Award”) with the Company and MMG prevailing on their claims. The Company and MMG were awarded the following: ● an award in favor of MMG against Vivos Holdings LLC under Note I (as defined in the Award) in the amount of $ 3,458 , with interest thereon from June 30, 2022, at the rate of 4.5 % per year; ● no award as to Note II (as defined in the Award) until and at such time as the automatic stay imposed by the United States Bankruptcy Court as a result of the filing of a petition in bankruptcy by VREH is lifted or the bankruptcy proceeding is terminated; ● an award in favor of MMG against Vivos Holdings, LLC under Note III (as defined in the Award) in the amount of $ 800 , with interest thereon from June 30, 2022, at the rate of 2.5 % per year, plus collection costs, including reasonable attorneys’ fees, incurred in the effort to collect Note III; ● an award in favor of MMG against Naveen under the Personal Guaranty (as defined in the Award) in the amount of $ 2,309 , plus interest thereon at the rate of 6 % per year from the date of the Award; ● an award in favor of the Company against Naveen, Valleru, Janumpally, individually and as Trustee of Judos Trust, and Pathuri, as Trustee of Igly Trust, jointly and severally, for contract damages of $ 1,000 , to be satisfied by the transfer of their shares of the Company common stock to the Company equal in value to $ 1,000 , valued as of the date of the Award, in accordance with the provisions of Section 9.06(d) of the Merger Agreement; ● an award in favor of the Company against Naveen, Valleru, Janumpally, individually and as Trustee of Judos Trust, and Pathuri, as Trustee of Igly Trust, jointly and severally, for fraud damages in the amount of $ 4,327 , plus interest thereon at the rate of 6 % per year from the date of the Award, together with any out-of-pocket fees and expenses, including attorneys’ and accountants’ fees; ● an award appointing a rehabilitative receiver for the Company under the deadlock situation provisions of Section 11.404(a)(1)(B) of the Texas Business Organizations Code, the primary function of which is to collect the contract and fraud damages, including costs, expenses and fees provided in the Award, due to the Company, with matters regarding such receivership to be set forth in a supplemental award; and ● declaratory relief in favor of the Company and its officers and directors. Section 11.404(a)(1)(B) of the Texas Business Organizations Code provides for the appointment of a rehabilitative receiver when “the governing persons of the entity are deadlocked in the management of the entity’s affairs, the owners or members of the entity are unable to break the deadlock, and irreparable injury to the entity is being suffered or is threatened because of the deadlock.” With respect to the receivership, the owners or holders of all of the shares of common stock of the Company received as a result of the conversion of 1,600 shares of common stock of MMG owed by Naveen and Valleru under the Merger Agreement shall not be entitled to vote any of those shares at any annual or special meeting of the shareholders of the Company during the period of the receivership. Upon the completion of the receiver’s primary function of collecting damages due to the Company, the receivership shall terminate and the restrictions on the rights of the shareholders of the Company imposed by the Award shall be lifted. 9 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (amounts in thousands, except per share data) The parties submitted material for clarification of the Award on March 7, 2023, and March 20, 2023, which included proposed language for an award to be entered against Vivos Real Estate Holdings, LLC (“VREH”), in light of the bankruptcy court order lifting the stay that pertains to VREH, which filed a petition in bankruptcy court. The date of a final award has not yet been determined. The Company, through counsel, has reached out to the Arbitrator to inquire about when a final award may be expected. Upon a final resolution as to the underlying ownership and rights of certain shareholders, the Company intends to hold an annual meeting of shareholders within a reasonable time thereafter. As of March 31, 2023, the Vivos Debtor (“Vivos Debtor”) balance was $ 5,327 . The arbitration award covering all bulleted items above currently totals $ 9,585 , independent of legal fees, interest, and other fees. Basis of presentation The unaudited condensed consolidated interim financial statements include the accounts of the Company and all wholly owned divisions, including its 100 % owned subsidiary, MMG. All significant intercompany accounts and transactions have been eliminated in consolidation. The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States and the rules of the SEC and should be read in conjunction with the audited financial statements and notes thereto contained in our Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the periods presented have been reflected herein. The results of operations for the periods presented herein are not necessarily indicative of the results to be expected for the full year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2022. Concentration of Credit Risk For the three months ended March 31, 2023, 25.2 % of revenue came from one customer, and 12.6 % from a second customer. Combined, this totals 37.8 % of revenue. Last year these two companies plus a third, accounted for 46.7 % of revenue for the same period ended March 31, 2022. No other client has exceeded 10% of revenues for the three months ended March 31, 2023, or 2022. NOTE 2. MANAGEMENT’S PLAN Although the Company continues to experience net operating losses, management believes it has the ability to continue as a going concern and meet its financial obligation as they become due in 2023 and beyond. The factors impacting this view include, but are not limited to, the following: ● Cash flow forecasts showing sufficient cash and working capital 52 weeks from April 23, 2023; ● The prospect of receiving the amounts awarded in the arbitration hearing in 2023, which include the $ 5,327 in notes receivable from related parties, plus awards for fraud totaling $ 4,327 , contract damages of $ 1,000 , and additional interest, and legal fees, after the receiver is selected; ● The anticipated reduction in legal fees; ● Addition of a new Vice President of Sales recently hired with experience and success in managing contingent and direct hire staffing organizations; and ● The Company has additional availability to use its factoring line to extend borrowings of up to 93 % of unfactored invoices which as of May 1, 2023, was $ 2,041 . 10 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (amounts in thousands, except per share data) As a result of the foregoing, the Company believes that it has sufficient cash to meet its financial obligations for the next 12 months and beyond as they become due. NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Adopted Accounting Pronouncements The Company does not believe any other recently issued but not yet effective accounting pronouncement, if adopted, would have a material effect on its present or future consolidated financial statements. NOTE 4. ACCOUNTS RECEIVABLE Accounts receivable can be broken down as follows: SCHEDULE OF ACCOUNTS RECEIVABLE March 31, 2023 December 31, 2022 Accounts receivable, Unfactored $ 2,300 3,131 Unbilled receivables 358 587 Accounts receivable, factored 924 2,619 Total Accounts Receivable 3,582 6,337 NOTE 5. DEBT Tax Liabilities As of March 31, 2023, the Company’s overall tax liability was $ 5 compared to $ 688 at end of same period in 2022 and $ 6 as of December 31, 2022. Factoring Facility The Company is in a factoring and security agreement with Gulf Coast Bank and Trust (“Gulf”) which enables the Company to receive advances on its accounts receivable (i.e., invoices) through Gulf to fund growth and operations. The proceeds of this agreement are most frequently used to pay operating costs of the business which include employee salaries, vendor payments and overhead expenses. Our arrangement calls for interest at prime plus 2 % and includes an advance rate of 18 basis points. The amount of an invoice eligible for sale to Gulf is 93%. This agreement is month to month. The Company continues to be obligated to meet certain financial covenants in respect to invoicing and reserve account balance. 11 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (amounts in thousands, except per share data) In accordance with the agreement, a reserve amount is required for the total unpaid balance of all purchased accounts multiplied by a percentage equal to the difference between one hundred percent and the advanced rate percentage. As of May 1, 2023, the required amount was 10 % . Any excess of the reserve amount is paid to the Company as requested. If a reserve shortfall exists for a period of ten days, the Company is required to make payment to Gulf for the shortage. Accounts receivables were sold with full recourse. Proceeds from the sale of receivables were $ 2,971 for the three-month period ending March 31, 2023, compared to $ 2,811 for the same period ending on March 31, 2022. The total outstanding balance under the recourse contract was $ 924 on March 31, 2023, compared to $ 2,619 as of December 31, 2022, and $ 1,590 on March 31, 2022. The Factoring facility is collateralized by substantially all the assets of the Company. In the event of a default, the Factor may demand that the Company repurchase the receivable or debit the reserve account. Total finance line fees for the three months ended March 31, 2023, and 2022 totaled $ 44 and $ 29 , respectively. NOTE 6. COMMITMENTS AND CONTINGENCIES There are a number of debts and confessions of judgement (“COJ”) related to the Vivos Group that included Maslow as a co-signer or guarantor at some stage in the Vivos Group debt process from November 2016 through October 29, 2019, when Vivos Holdings LLC owned Maslow. All known debts disclosed to Maslow management and Reliability prior to the Merger were addressed by various safeguards such as the Liquidation Agreement, and the Naveen Doki personal guarantee described in Item 1. However, there were certain non-disclosures by Vivos Holdings, LLC that are included below which are completely covered in Note 8 and Item 3 Legal Proceedings. In December 2019, the Company’s executive management learned that prior to the Merger, in January 2018, one of the Company’s related parties, on behalf of Maslow, executed a guarantee of obligations of Vivos Real Estate Holdings, LLC (“VREH”), under a mortgage loan for the purchase of the property at 22 Baltimore Rd., Rockville, Maryland. Maslow leased this space on market terms. This obligation had not been included in Maslow’s consolidated financial statements and was not separately disclosed prior to the Merger. On March 3, 2022, Maslow received a notice of default, acceleration, and demand for payment-in-full from FVCBank due to incurable events of default on behalf of Borrower, VREH. Per the default notice, “As of March 2, 2022, the total indebtedness due and owing under the Loan (the ‘‘Debt’’) is $ 1,743 consisting of an unpaid principal balance in the amount of $ 1,703 accrued and unpaid interest in the amount of $ 7 , deferred payments in the amount of $ 20 and late fees in the amount of $ 12 plus prepayment penalties and attorneys’ fees, costs and expenses,” less setoff fees of $ 16 . Maslow may have grounds to contest it being a guarantor on the loan. On July 12, 2022, MMG was advised that a foreclosure sale of the 22 Baltimore Road property was scheduled to take place on August 4, 2022, at Montgomery County Circuit Court in Rockville, Maryland. It was subsequently cancelled after VREH filed for bankruptcy on August 2, 2022. On August 2, 2022, VREH filed for Chapter 11 bankruptcy in the District Court of Maryland. Maslow filed a Motion to Vacate Confessed Judgment entered against it by FVC Bank in the Circuit Court for Fairfax County. On November 17, 2022, FVC Bank and VREH entered into a Stipulation and Consent Order through the bankruptcy court that provides VREH to pay back taxes and interest, hire a new property manager and make repairs to the building, and work on a plan to refinance or sell the building. This automatic stay to the bankruptcy proceeding provides VREH until April 15 th , 2023, to either refinance or sell the building to prevent FVC Bank from foreclosing on the property and commencing action to sell the property. 12 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (amounts in thousands, except per share data) In April 2023, VREH and FVC Bank negotiated through the bankruptcy court a revised Stipulation and Consent Order. VREH has so far met the requirements of the new order which included paying down the liability owed to FVC Bank by $ 350,000 . VREH is working towards obtaining a commitment letter from a lender so that one of their affiliated entities can purchase the building by June 1 st , 2023. The Company continues to dispute its placement as a guarantor on the mortgage associated with FVC Bank and is working to mitigate any liability associated with VREH’s default on the mortgage. In September 2022, MMG learned that Vivos IT, LLC filed a lawsuit against Second Wind Consultants (“SWC”) in May 2019 included MMG as a plaintiff. The lawsuit included claims of fraud in inducement and unjust enrichment against SWC. The five parties suing SWC, included Vivos LLC, The Maslow Media Group, Suresh Venkat Doki, Naveen Doki and Silvija Valleru. The lawsuit related to a debt restructuring services agreement secured by Suresh Doki, Naveen Doki and Silvija Valleru to assist the following then owned Vivos entities: Maslow Media Group, Inc., Health Care Resources Network, Inc., Mettler & Michael, Inc., 360 IT Professionals, Inc. and US IT Solutions, Inc. SWC countersued all plaintiffs on September 30th, 2019, seeking to collect the balance of $ 402,500 not paid by the Vivos Group. These suits were not disclosed to Maslow management or to Reliability before the Merger closed on October 29, 2019. MMG is weighing its legal options at this time. The Company filed a motion in January 2023 to include all original parties to the SWC Agreement. The court has not yet issued its ruling on the motion filed. At the present time, the Company is uncertain as to whether any of the above items will have a material impact on their consolidated financial statements. NOTE 7. EQUITY The Company’s authorized capital stock consists of 300,000,000 shares of common stock, with no par value. All authorized shares of Company Common Stock are issued and outstanding. NOTE 8. RELATED PARTY TRANSACTIONS Stock Purchase Agreement On November 9, 2016, Vivos Holdings, LLC, the former owner of MMG, acquired 100 % of MMG through a stock acquisition exchange for a purchase price of $ 1,750 , of which: (i) $ 1,400 was paid at settlement with proceeds from MMG and (ii) a promissory note to pay the remaining $ 350 (“Vivos/MMG Purchase Agreement”). The promissory note was to be paid in twenty-four equal installments, including interest at 4.5%, in the amount of approximately $15, commencing six months after closing, with the last payment on March 1, 2019 . These payments were paid by MMG on behalf of the Vivos Debtors. The Vivos Debtors subsequently entered into a promissory note receivable with MMG, described below, for the full stock purchase price. No payment has ever been made against this note and between 2018 to present, there has been $ 2,503 in additional borrowings. As of March 31, 2023, and December 31, 2022, the receivable totaled $ 5,327 and $ 5,251 , respectively. This is not inclusive of the additional amounts awarded in the arbitration. Notes Receivable The Company has notes receivable from Vivos Holdings, LLC and VREH, a member of Vivos Group, both related party affiliates due to their ownership percentage in the Company. Per Code of Virginia the legal rate of interest shall be implied when there is an obligation to pay interest and no express contract to pay interest at a specified rate. However, it was determined in 2021 that the two notes had clauses capping the default interest at 4.5 % and 5.5 % respectively. The rate adjustment for the allowed periods was made using the eligible agreement rates. 13 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (amounts in thousands, except per share data) In connection with the Vivos/MMG Purchase Agreement, on November 15, 2016, MMG executed a promissory note receivable with Vivos Holdings LLC in the amount of $ 1,400 . As defined by the Vivos/MMG Purchase Agreement, the loan consisted of two periods, whereby in the first period no principal or interest payments were required. During the second loan period, interest was supposed to have been paid in 20 equal consecutive payments, quarterly. Principal plus any unpaid interest is due September 20, 2023 . As of December 31, 2022, the total outstanding balance was $ 3,585 which includes accrued interest receivable of $ 168 . On November 15, 2017, MMG executed an intercompany promissory note receivable with VREH in the amount of $ 772 . There were two loan periods defined. During the first loan period, interest accrued monthly and a new loan amount of $ 781 was subject to a second loan period. As of March 31, 2023, the total outstanding balance was $ 868 which includes accrued interest receivable of $ 14 for the period ending March 31, 2023. On June 12, 2019, MMG entered into a Personal Guaranty agreement with Dr. Doki, pursuant to which Dr. Naveen Doki personally guaranteed to MMG repayment of $ 3,000 of the balance of the Promissory Note issued to Vivos Debtors on November 15, 2017, within the 2019 calendar year via cash, stock, or other business assets acceptable to the Company. Dr. Doki is a 5 % or greater beneficial holder of Company Common Stock, and therefore is a related party. As of February 2020, the Company filed a lawsuit against the majority shareholder, pursuant to the personal guaranty agreement for defaulting on the outstanding notes receivable. Over the period between November 2016 and March 31, 2023, the Vivos Group borrowed an additional $ 2,547 . which is included in the note receivable totaling $ 3,643 . On September 5, 2019, MMG entered into a Secured Promissory Note agreement with Vivos, pursuant to which MMG issued a secured promissory note to the Vivos Group in the principal amount of $ 750 . The note bears interest at 2.5 % per year and requires the Vivos Group to make monthly payments to MMG of $ 10 beginning December 1, 2019, with balance due and payable on November 1, 2026 . Upon an event of default has occurred, MMG has the right to declare the entire unpaid balance of the note due and payable. The note was secured by 30,000,000 shares of Company Common Stock, was due and payable upon a default by Vivos. In addition, both Naveen Doki and Silvija Valleru personally guaranteed the repayment of the note by the Vivos Group. Naveen Doki and Silvija Valleru were beneficial owners of Vivos and are also 5 % or greater beneficial owners of Company Common Stock, which is qualified by the Merger Arbitration complaint. As of March 31, 2023, the total outstanding balance was $ 869 , which includes 2023 interest of $ 12 . Debt Settlement Agreements On July 21, 2022, Maslow settled the obligation which Vivos Holdings, LLC had obligated Maslow to in July 2018, with Libertas Funding, LLC and Kinetic for $ 475 . (See Section 1A). The $ 475 is included in the additional borrowing cited above. Related Party Relationships On October 29, 2019, prior to the Merger, pursuant to the Merger Agreement, Naveen Doki and Silvija Valleru became beneficial owners of 206,606,528 and 51,652,908 shares of RLBY Common Stock, respectively, equal to 68.9 % and 17.2 % of the total number of shares of RLBY Common Stock outstanding after giving effect to the Merger, respectively. The Company’s arbitration award thus far includes relinquishment of shares of the Company common stock equal in value to $ 1,000 , valued as of the date of the Award, in accordance with the provisions of Section 9.06(d) of the Merger Agreement (see Note 1). 14 RELIABILITY INCORPORATED AND SUBSIDIARY NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS March 31, 2023 (amounts in thousands, except per share data) In 2019, the Company entered into transactions with two executive officers, Nick Tsahalis and Mark Speck, of the Company, resulting in the issuance of warrants to purchase 163,232 shares each of common stock. The term “warrant” herein refers to warrants issued by MMG and assumed by the Company as a result of the Merger. The terms of all Warrants are the same other than as to the number of shares covered thereby. The Warrant may be exercised at any time or from time to time during the period commencing at 10:00 a.m. Eastern time on first business day following the completion of the Qualified Financing (as defined below) and expiring at 5:00 p.m. Eastern time on the fifth annual anniversary thereof (the “Exercise Period”). For purposes herein, a “Qualified Financing” means the issuance by the Company, other than certain excluded issuances of shares of Common Stock, in one transaction or series of related transactions, which transaction(s) result in aggregate gross proceeds actually received by the Company of at least $ 5,000 . The exercise price per full share of the Company common stock shall be 120 % of the average sale price of the Company common stock across all transactions constituting a part of the Qualified Financing, with equitable adjustments being made for any splits, combinations or dividends relating to the Company common stock, or combinations, recapitalization, reclassifications, extraordinary distributions and similar events, that occur following one transaction constituting a part of the Qualified Financing and prior to one or more other transactions constituting a part of the Qualified Financing (the “Exercise Price”). Convertible note warrants were not valued and included as liability on balance sheet because of uncertainty around their pricing, value and low probability at this juncture in receiving the $ 5,000 trigger. NOTE 9. BUSINESS SEGMENTS The Company operates within four industry segments: EOR, Recruiting and Staffing, Direct Hire, and Video Production. The EOR segment provides media field talent to a host of large corporate customers in all 50 states. The Recruiting and Staffing segment provides skilled Media and IT field talent on a nationwide basis for customers in a myriad of industries. Direct Hire fulfils direct placement requests by MMG clients for a wide variety of posts, including administrative, media and IT professionals. The Video and Multimedia Production segment provides Script to Screen services for corporate, government and non-profit clients, globally. The following table provides a reconciliation of revenue by reportable segment to consolidated results for the three months ended March 31, 2023, and 2022, respectively: For the three months ended March 31: SCHEDULE OF RECONCILIATION OF REVENUE AND OPERATING INCOME BY REPORTABLE SEGMENT TO CONSOLIDATED RESULTS 2023 2022 Revenue: EOR $ 4,273 $ 4,773 Recruiting and Staffing 765 923 Direct Hire 30 39 Video and Multimedia Production 131 48 Total $ 5,199 $ 5,783 R evenue $ 5,199 $ 5,783 NOTE 10. SUBSEQUENT EVENTS The Company has evaluated subsequent events through May 10, 2023, the date on which the unaudited condensed consolidated financial statements were available to be issued. Based upon this evaluation, management has determined that no material subsequent events have occurred that would require recognition in or disclosures in the accompanying unaudited condensed consolidated financial statements, except as follows: On April 29, 2023, the Company received a check from the IRS for $ 1,203 covering its second quarter ERC claim which at the end of March 31, 2023, was posted as receivable (Item 1) for $ 1,226 including accrued interest. 15